Kraft Heinz Company (KHC) has taken taken advantage of strategic leadership to create an ethical organization internally and externally. Strategic leadership refers to management's potential to express a strategic vision for the organization, and to motivate and persuade others to accept and adopt that vision.
Internally, KHC adheres to its Code of Ethics, which centers around three guiding principles: compliance with all applicable laws, regulations, and company policies; adherence to the highest ethical standards; and the duty to speak up/no retaliation. Within the adherence to highest ethical standards principle, the Code of Ethics prioritizes safety in the workplace, handling non-public information privately and confidentially, not tolerating discrimination or harassment, making delicious, safe, and high quality foods, and to market and communicate responsibly, just to name a few. By establishing the Code of Ethics, KHC's management has been able to derive a strategic advantage through maintaining an ethical organizational culture.
The Code of Ethics also states the company is a socially and environmentally friendly company that aims to actively engage in growing a better world. To accomplish this external goal, management has acted strategically and has established 'sustainable business practices.' For example, KHC will be focusing on the environment by aiming to reduce greenhouse gas emissions, reduce energy consumption, reduce water consumption, and reduce solid waste sent to landfills by 15% by 2020. The company is also focusing on animal welfare, as KHC believes it is important for consumers to feel good about the products they buy. An animal welfare policy has been established, and it even requires suppliers to have a zero tolerance policy for willful acts of animal abuse and neglect.
Overall, I feel Kraft Heinz Company is moving in the right direction ethically. In today's culture of social and environmental awareness, I feel the above strategic management decisions will pay dividends and help the company achieve competitive advantages within their industry.
Thursday, May 4, 2017
Monday, April 24, 2017
Ch. 10: Creating Effective Organizational Designs
Organizational structures have a direct impact on how effectively companies may operate within their industry. Kraft Heinz Company (KHC) operates under a divisional organizational structure, which is an organizational form where products, projects, or product markets are grouped internally. In KHC's case, product markets drive the divisional organizational structure.
The CEO oversees functional departments for domestic operations, some of which include Foodservice; Operations; HR, Performance & IT; Corporate & Government; and US Commercial. The CEO also oversees divisions for Latin America, Canada, Europe, and AMEA (Asia, the Middle East, and Africa). Each domestic department is broken down further into more specific areas. For example, the US Commercial department oversees Kraft Foods and Oscar Mayer, Beverages and Snack Nuts, US Meals and Sauces, US Sales, as well as US Meat and Dairy to name a few. By structuring the organization based on geographic location, Kraft Heinz Company may obtain competitive advantages through their in depth knowledge of each geographic business segment as they are better equipped to provide products tailored to cultural preferences. Kraft Heinz Company is also able to respond quickly to environmental changes.
Additional advantages the divisional structure provides KHC include the ability to increase/maintain strategic and operational control, allowing corporate-level executives to address strategic issues as they arise. With a central decision maker on the top, this serves as a competitive advantage in that there is no confusion on who has authority and decisions can be made in a more timely manner. Additionally, the divisional structure minimizes problems associated with sharing resources across functional areas and facilitates the development of general managers. For example, the divisional structure requires multiple controllers and corporate managers to oversee both functional areas and geographic reasons. As a result, there would be a broader pool of qualified applicants should an upper level executive position open up - a competitive advantage for the company.
In short, KHC is the fifth largest food and beverage company in the world and so it is no surprise the company is present in multiple geographic areas. Combined with a strong domestic presence, a divisional organizational structure is the most logical and efficient structure for operational and decision making purposes.
The CEO oversees functional departments for domestic operations, some of which include Foodservice; Operations; HR, Performance & IT; Corporate & Government; and US Commercial. The CEO also oversees divisions for Latin America, Canada, Europe, and AMEA (Asia, the Middle East, and Africa). Each domestic department is broken down further into more specific areas. For example, the US Commercial department oversees Kraft Foods and Oscar Mayer, Beverages and Snack Nuts, US Meals and Sauces, US Sales, as well as US Meat and Dairy to name a few. By structuring the organization based on geographic location, Kraft Heinz Company may obtain competitive advantages through their in depth knowledge of each geographic business segment as they are better equipped to provide products tailored to cultural preferences. Kraft Heinz Company is also able to respond quickly to environmental changes.
Additional advantages the divisional structure provides KHC include the ability to increase/maintain strategic and operational control, allowing corporate-level executives to address strategic issues as they arise. With a central decision maker on the top, this serves as a competitive advantage in that there is no confusion on who has authority and decisions can be made in a more timely manner. Additionally, the divisional structure minimizes problems associated with sharing resources across functional areas and facilitates the development of general managers. For example, the divisional structure requires multiple controllers and corporate managers to oversee both functional areas and geographic reasons. As a result, there would be a broader pool of qualified applicants should an upper level executive position open up - a competitive advantage for the company.
In short, KHC is the fifth largest food and beverage company in the world and so it is no surprise the company is present in multiple geographic areas. Combined with a strong domestic presence, a divisional organizational structure is the most logical and efficient structure for operational and decision making purposes.
Wednesday, April 19, 2017
Ch. 9: Strategic Control and Corporate Governance
Chapter 9 covered two main concepts: strategic control and corporate governance. By analyzing Kraft Heinz Company (KHC), examples of how each were implemented and how the company obtained competitive advantages through them can be found.
Strategic control is the process of monitoring and correcting a firm's strategy and performance. One way to do this is to focus on organizational culture. Organizational culture is a system of shared values and beliefs that shape a company's people, organizational structure, and control systems to produce behavioral norms. A variety of studies have proven that culture has a powerful influence on how an organization performs. To capitalize on corporate culture's effectiveness, KHC emphasizes a 'culture of ownership.' According to the company's website, "Our values of Ownership and Meritocracy are two exciting elements of the Kraft Heinz culture. They create an environment of empowerment unique to our company and provide high-potential employees with unlimited growth opportunity." By following through with this shared ownership attitude, KHC will be able to retain employees who feel valued, which will ultimately prove to be a competitive advantage.
Corporate governance is the relationship among various participants in determining the direction and performance of corporations. The primary participants are the shareholders, management, and the board of directors. Having a CEO and a chairman of the board who are independent of each other can serve as a competitive advantage as they will both be able to positively serve the corporation and keep each other's actions in check. Having separate people in separate positions such as chairman and CEO is also a competitive advantage because all company stakeholders can be further assured no fraud or corruption is taking place. The current chairman, Mr. Alexandre Behring, was the previous chairman for Heinz company, prior to KHC's merger. KHC's current CEO is Bernardo Hees, prior to the merger of Kraft Foods Group and the H.J. Heinz Company in 2015, Mr. Hees occupied H.J. Heinz Company's CEO position since 2013. Although KHC may derive slight competitive advantages from having separate individuals in the CEO and board chairman positions, both Hees and Behring have similar work histories, and thus it is possible they are well known acquaintances, or even good friends. Although their expertise in the industry may also serve as a competitive advantage to the company, investors should also acknowledge their relationship may not be entirely independent.
Strategic control is the process of monitoring and correcting a firm's strategy and performance. One way to do this is to focus on organizational culture. Organizational culture is a system of shared values and beliefs that shape a company's people, organizational structure, and control systems to produce behavioral norms. A variety of studies have proven that culture has a powerful influence on how an organization performs. To capitalize on corporate culture's effectiveness, KHC emphasizes a 'culture of ownership.' According to the company's website, "Our values of Ownership and Meritocracy are two exciting elements of the Kraft Heinz culture. They create an environment of empowerment unique to our company and provide high-potential employees with unlimited growth opportunity." By following through with this shared ownership attitude, KHC will be able to retain employees who feel valued, which will ultimately prove to be a competitive advantage.
Corporate governance is the relationship among various participants in determining the direction and performance of corporations. The primary participants are the shareholders, management, and the board of directors. Having a CEO and a chairman of the board who are independent of each other can serve as a competitive advantage as they will both be able to positively serve the corporation and keep each other's actions in check. Having separate people in separate positions such as chairman and CEO is also a competitive advantage because all company stakeholders can be further assured no fraud or corruption is taking place. The current chairman, Mr. Alexandre Behring, was the previous chairman for Heinz company, prior to KHC's merger. KHC's current CEO is Bernardo Hees, prior to the merger of Kraft Foods Group and the H.J. Heinz Company in 2015, Mr. Hees occupied H.J. Heinz Company's CEO position since 2013. Although KHC may derive slight competitive advantages from having separate individuals in the CEO and board chairman positions, both Hees and Behring have similar work histories, and thus it is possible they are well known acquaintances, or even good friends. Although their expertise in the industry may also serve as a competitive advantage to the company, investors should also acknowledge their relationship may not be entirely independent.
Thursday, March 30, 2017
Ch. 7: International Strategies
An international strategy is a strategy that involves business operations within multiple countries. Kraft-Heinz company's international strategies tend to center around mergers (historically, and today). Kraft and Heinz recently underwent a merger, with the primary reason being both companies wanted to expand into international territory.
Prior to the merger, Heinz had a global platform with 61% of the total sales coming from international markets. Meanwhile, Kraft Foods generated 98% of its sales domestically. By merging, the two companies combined could sell their products in both international and domestic markets. By having a global presence and internationally expanding, both companies have thus also been able to be more competitive in regards to pricing and product offerings as well as lessen the risk they may face if the United States or another major country's economy went south (risk reduction).
Although the merger between Kraft and Heinz allowed both companies to expand their consumer base, the food conglomerate recently tried to acquire Unilever, which is a Dutch-British transnational consumer goods company that produces food, beverages, cleaning agents and personal care products. Unilever denied KHC's initial offer, but an acceptance would have added Hellmann's mayonnaise and Ben & Jerry's ice cream to their already strong product profile. Kraft-Heinz's goal is to become a global powerhouse in the food and beverage industry and it is evident the company's international strategy is to acquire other companies with product lines that could be incorporated into their own and who also already have a strong international presence.
Prior to the merger, Heinz had a global platform with 61% of the total sales coming from international markets. Meanwhile, Kraft Foods generated 98% of its sales domestically. By merging, the two companies combined could sell their products in both international and domestic markets. By having a global presence and internationally expanding, both companies have thus also been able to be more competitive in regards to pricing and product offerings as well as lessen the risk they may face if the United States or another major country's economy went south (risk reduction).
Although the merger between Kraft and Heinz allowed both companies to expand their consumer base, the food conglomerate recently tried to acquire Unilever, which is a Dutch-British transnational consumer goods company that produces food, beverages, cleaning agents and personal care products. Unilever denied KHC's initial offer, but an acceptance would have added Hellmann's mayonnaise and Ben & Jerry's ice cream to their already strong product profile. Kraft-Heinz's goal is to become a global powerhouse in the food and beverage industry and it is evident the company's international strategy is to acquire other companies with product lines that could be incorporated into their own and who also already have a strong international presence.
Friday, March 24, 2017
Ch. 6: Corporate-Level Strategies
Corporate-level strategies are strategies that focus on gaining long-term revenue, profits, and market value through managing operations in multiple businesses (diversification). Both Kraft Foods and Heinz made a smart move in diversifying their businesses in July of 2015 by merging. In the fiscal year prior to the merger, 61% of Heinz's total sales came from their international market, while Kraft Foods generated 98% of total sales domestically. The strategic decision to merge horizontally allowed for both companies to expand their market share simply through association with the other company. While both are in the packaged food industry, the two companies' primary markets differed and thus synergies and competitive advantages for both companies have been generated.
The Kraft-Heinz Company (KHC) merger also led to competitive advantages through corporate-level strategy by taking advantage of economies of scope. Economies of scope are cost savings from leveraging core competencies or sharing related activities among businesses in a corporation. According to an analysis of the merger completed and published by marketrealist.com, the company is consolidating their North American supply chain network, and also announced a cost-saving initiative in the form of the reduction in corporate headcount. By integrating their domestic supply chains and reducing general and administration expenses, significant cost savings will occur. Cost savings will also occur from shared manufacturing facilities, ingredients, and customer/retailer relationships. Revenue enhancement through increased sales will likely occur as customers recognize that both brands have solid and trustworthy reputations.
The Kraft-Heinz Company (KHC) merger also led to competitive advantages through corporate-level strategy by taking advantage of economies of scope. Economies of scope are cost savings from leveraging core competencies or sharing related activities among businesses in a corporation. According to an analysis of the merger completed and published by marketrealist.com, the company is consolidating their North American supply chain network, and also announced a cost-saving initiative in the form of the reduction in corporate headcount. By integrating their domestic supply chains and reducing general and administration expenses, significant cost savings will occur. Cost savings will also occur from shared manufacturing facilities, ingredients, and customer/retailer relationships. Revenue enhancement through increased sales will likely occur as customers recognize that both brands have solid and trustworthy reputations.
Saturday, March 11, 2017
Ch. 5: Business-Level Strategies
The Kraft-Heinz Company's business-level strategy is a hybrid, consisting of both cost-cutting and differentiation tactics. Within the food product industry there is a significant amount of competition, however Kraft Heinz Company (KHC) strives to provide customers with the best product and value for their dollar as well as with new and innovative flavors/varieties of products that can already be found on store shelves.
For example, at a major retailer such as Walmart, multiple brands of ketchup can be found. A 32 ounce bottle of Heinz Ketchup would cost a consumer around $2.88 (9 cents per ounce), whereas a bottle of Walmart's generic Great Value brand ketchup would cost a mere $2.92 for 64 ounces (4.6 cents per ounce). It is clear that even at a mass retailer such as Walmart, Kraft Heinz Company's products are not the cheapest option. Aligning with their company goal of providing customers with the best value for their dollar, Heinz ketchup is arguably tastier than its cheaper alternatives and also comes packaged in a bottle that is more user friendly. Complete with the 'upside down lid' to help consumers use every last drop, and a no drip valve to prevent messes, it is evident consumers are willing to pay a little more for convenient ketchup. Although Heinz Ketchup may be a few cents more expensive per ounce, their products are still reasonably priced and the average consumer can afford to purchase them, keeping them in the low-cost category. In addition, KHC offers more variety (differentiation) in their ketchups than their contenders. For example, KHC has recently introduced Heinz Organic, No Salt, and Reduced Sugar ketchups to appeal to health-conscious consumers as well as Jalepeno and Sriracha flavors to appeal to those who may be more adventurous.
A similar story can be told with Kraft Mac & Cheese. Consumers can purchase a 4 pack of Kraft Mac & Cheese personal cups for $3.50 (87.5 cents each), whereas a 6 pack of Great Value's version would cost consumers just $3.24 (54 cents each). Again, KHC is not the cheapest option on the shelves, but the company is able to justify the price increase by having a reliable brand name that is known for quality. To differentiate their product from the competition, KHC has also rolled out a variety of Mac & Cheese options, including Kraft Velveeta Shells & Cheese (KHC also owns the Velveeta brand), Kraft Velveeta Shells & Cheese with Bacon, and the traditional Kraft Mac & Cheese with troll noodles or spiral noodles, just to name a few.
Overall, Kraft Heinz Company's business level strategies are clearly a combination of cost-cutting and differentiation tactics. The merger between Kraft and Heinz generated synergies that allowed the company to produce products at cheaper prices, have more bargaining power with retailers, and also allowed for growth/differentiation in product varieties to appeal to a broader range of consumers. Going forward, KHC is striving for profitable sales growth and to achieve and maintain best-in-class margins. I believe continuing to adhere to a low-cost and differentiation business level strategy will help KHC reach their goals.
For example, at a major retailer such as Walmart, multiple brands of ketchup can be found. A 32 ounce bottle of Heinz Ketchup would cost a consumer around $2.88 (9 cents per ounce), whereas a bottle of Walmart's generic Great Value brand ketchup would cost a mere $2.92 for 64 ounces (4.6 cents per ounce). It is clear that even at a mass retailer such as Walmart, Kraft Heinz Company's products are not the cheapest option. Aligning with their company goal of providing customers with the best value for their dollar, Heinz ketchup is arguably tastier than its cheaper alternatives and also comes packaged in a bottle that is more user friendly. Complete with the 'upside down lid' to help consumers use every last drop, and a no drip valve to prevent messes, it is evident consumers are willing to pay a little more for convenient ketchup. Although Heinz Ketchup may be a few cents more expensive per ounce, their products are still reasonably priced and the average consumer can afford to purchase them, keeping them in the low-cost category. In addition, KHC offers more variety (differentiation) in their ketchups than their contenders. For example, KHC has recently introduced Heinz Organic, No Salt, and Reduced Sugar ketchups to appeal to health-conscious consumers as well as Jalepeno and Sriracha flavors to appeal to those who may be more adventurous.
A similar story can be told with Kraft Mac & Cheese. Consumers can purchase a 4 pack of Kraft Mac & Cheese personal cups for $3.50 (87.5 cents each), whereas a 6 pack of Great Value's version would cost consumers just $3.24 (54 cents each). Again, KHC is not the cheapest option on the shelves, but the company is able to justify the price increase by having a reliable brand name that is known for quality. To differentiate their product from the competition, KHC has also rolled out a variety of Mac & Cheese options, including Kraft Velveeta Shells & Cheese (KHC also owns the Velveeta brand), Kraft Velveeta Shells & Cheese with Bacon, and the traditional Kraft Mac & Cheese with troll noodles or spiral noodles, just to name a few.
Overall, Kraft Heinz Company's business level strategies are clearly a combination of cost-cutting and differentiation tactics. The merger between Kraft and Heinz generated synergies that allowed the company to produce products at cheaper prices, have more bargaining power with retailers, and also allowed for growth/differentiation in product varieties to appeal to a broader range of consumers. Going forward, KHC is striving for profitable sales growth and to achieve and maintain best-in-class margins. I believe continuing to adhere to a low-cost and differentiation business level strategy will help KHC reach their goals.
Sunday, February 26, 2017
Ch. 4: Intellectual Assets and Competitive Advantages
Because Kraft-Heinz Company does business in the Food Processing industry, intellectual property, such as patents and trademarks on the Company's products, is essential to ensuring key products are not copied and for building brand (and product) loyalty. According to the Company's most recent annual report, "Our trademarks are material to our business and are among our most valuable assets." Some of the most recognizable trademarks include Kraft, Oscar Mayer, Heinz, Jell-O, and Lunchables. By consistently providing quality products under these brand names, Kraft-Heinz Company has been able to build trust and capitalize on customers' brand loyalty - clearly a key competitive advantage in the Company's respective industry.
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